Dow tops 26,000 on Chinese tariff delay, rate cut hopes

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How do the markets view trade and the Fed?

ETF Trends CEO Tom Lydon discusses his outlook for the markets.

The Dow Jones Industrial Average topped 26,000 Friday on increased hopes for an interest rate cut by the Federal Reserve and the White House decision to delay more Chinese tariffs.

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Wall Street interpreted a surprisingly weak May jobs report -- 75,000 jobs added instead of the 185,000 expected -- as putting more pressure on the U.S. central bank to cut the federal funds rate. The Fed could act as soon as next month to cut interest rates and give the economy a boost.

Besides topping 26,000 in midday trading and then hovering just above and below that level, the Dow was on pace to break a six-week string of losses, while the S&P 500 and the Nasdaq Composite were on track to break a four-week string of declines.

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Further, the Dow and S&P 500were looking at their best weeks since Nov. 30, while the Nasdaq was on track for its best week of this year. The tech-heavy index has climbed nearly 6 percent since Monday when it fell into correction territory.

The big miss in May job creation could add pressure on the Federal Reserve to cut interest rates, perhaps as soon as next month.

"This is the type of read the doves will really take to, as it supports the argument for cutting rates beyond politics or trade issues, which were never part of the Fed’s mandate to begin with," Mike Loewengart, vice president with E*TRADE Financial," said in a statement.

TickerSecurityLastChange%Chg
I:DJIDOW JONES AVERAGES25741.64-510.60-1.95%
SP500S&P 5002861.47-61.48-2.10%
I:COMPNASDAQ COMPOSITE INDEX7780.824794-210.56-2.63%

"That said, our historically low unemployment rate hasn’t moved, and even though the number came in low we’re still creating jobs, which supports the case that the economy is still expanding. So the Fed will have to walk a really thin line."

Cliff Hodge, director of investments for Cornerstone Wealth, said that the downward revisions of job creation in March and April "put July squarely in play for a rate cut."

The U.S. decision to delay tariffs on Chinese goods gave exporters in the world's second-largest economy more time before higher tariffs and also lifted Wall Street's mood, according to Reuters. Washington officially granted Chinese exporters two more weeks to get their products into the country before hiking tariffs, according to a U.S. government notice posted online.

Also lifting stock investor sentiment was Vice President Mike Pence’s chief of staff saying that if negotiations with Mexico continue to go well, Trump could decide not to implement tariffs on Monday.

Microsoft shares hit a record high and became a trillion-dollar company.

Shares of Beyond Meat soared after the maker of plant-based sausages and burgers said it expects to more than double its revenue in 2019.

TickerSecurityLastChange%Chg
MSFTMICROSOFT CORP.133.76-4.02-2.92%
BYNDBEYOND MEAT INC.147.89-3.10-2.05%

The yield on the 10-year Treasury slipped to 2.07 percent, a 21-month low. Because the yield and price of bonds move in opposite directions declining yields signal rising demand for the safety of debt at the expense of equity.

For some investors, falling interest rates confirm that the American economy is weakening.

"While much of the attention from investors has been focused on trade disputes and the potential for a slowing economy, today’s disappointing employment report provides further evidence that the end of the business cycle is upon us and economic activity is slowing," Charlie Ripley, senior investment strategist for Allianz Investment Management, said in a statement. "One weaker data point on the labor market is unlikely to push the Fed to react sooner by lowering policy rates, but it’s going to get their attention as the drumbeat for rate cuts grows louder from market participants.

Crude oil prices rose: West Texas Intermediate climbed 0.30 percent to $52.75 per barrel. The price of Brent crude oil, the global benchmark, was up 1 percent at $62.28 a barrel.

On Thursday the Dow closed 181 points higher or 0.7 percent and is on pace for its longest winning streak in almost three months. The S&P 500 and Nasdaq Composite also gained.

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Chinese markets were closed for a holiday, but Japan’s Nikkei 225 ended up 0.53 percent, and Korea’s benchmark Kospi index gained 0.2 percent.

Britain’s FTSE 100 was up 1 percent, France’s CAC 40 climbed 1.7 percent and Germany’s DAX rose 0.9 percent.